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24 Jan 2018

The Guangdong-Hong Kong-Macau Bay Area and Hong Kong

Bay Area: Aims and Significance

A statistical evaluation of the world’s major bay areas (including the Tokyo Bay Area, the New York Metropolitan Area and the San Francisco Bay Area; see table below) shows that the Guangdong-Hong Kong-Macau Bay Area (the Bay Area) [1] is set to out-perform all of these in a number of key respects, including rate of growth, port capacity, airport access, population level and sheer geographical size. It is, however, trailing these other development areas in terms of per-capita GDP and the maturity of its tertiary sector, indicating that it still has scope for considerable growth. Assuming that all of the areas in question maintain their current level of growth, the Bay Area will have achieved a GDP of US$2.1 trillion within five years, a figure that will see it comfortably overtaking the other bay developments.

The San Francisco Bay Area covers nine counties bordering the San Francisco Bay. The New York Metropolitan Area covers the three cities of New York, Newark and Jersey and 25 surrounding counties. The Tokyo Bay Area covers Tokyo and its seven surrounding prefectures.Source: Government statistical departments in the relevant jurisdictions

Thanks to the “one country, two systems” policy, the Bay Area enjoys a unique advantage. While two of the components of the Bay Area – Hong Kong and Macau – are capitalist economies with their own particular strengths, the remainder of the region operates under a socialist system, allowing the advantages of both of these approaches to be fully leveraged. Not only is this a combination unique within China, it is also the only occurrence of such a partnership anywhere in the world.

While the “one country, two systems” approach clearly brings huge benefits to the Bay Area, it also comes with a number of challenges. Most notably, there is the issue of ensuring economic and social integration across the region, while initiating the free movement of factors of production, promoting fair competition and maintaining a high level of co-operation between the various enterprises and institutions operating out of the Bay Area. At the same time, avoiding the emergence of any conflicts and any attempts to take unfair economic advantage of this emerging landscape will remain clear priorities.

Having said that, it is also true that the different systems will complement one another, as has been the case in the development of onshore / offshore Renminbi business. In this instance, running multiple systems in parallel proved a vital testing ground for the country’s wider institutional reform, with Hong Kong’s internationalisation of the Renminbi a clear case in point. Capitalising on the advantages of the “one country, two systems” approach, while navigating around any problems caused by any apparent incompatibilities in the two models, will be crucial to the overall success of the Bay Area.

Compared with China’s other major bays, the Guangdong-Hong Kong-Macau region has the highest degree of marketisation and liberalisation, while also being the most cosmopolitan. In light of these particular attributes, the Bay Area has three designated priorities:

1. Advancing the market-oriented reform of the Chinese economy2. Enhancing the international implementation of the Belt and Road Initiative3. Accelerating the Chinese economy’s integration into the wider global economy, while providing a fresh impetus to moves to sustain the global recovery.

In essence, then, integration throughout the Bay Area will be based on the principles of marketisation and internationalisation. In order to achieve this, a high level of co-ordination will be required between government and non-government bodies at a variety of different levels, together with a uniform approach to harnessing a number of individual programmes, market forces and other economic mechanisms.

At the government level, the focus will be on removing any institutional and policy obstacles likely to impede full co-operation between Guangdong, Hong Kong and Macau, while moves will also be made to strengthen infrastructure connectivity and the harmonisation of both technical standards and professional qualifications. From past experience, institutional and policy co-ordination will require the central government and its local counterparts to work very closely together. Previously, such an arrangement has resulted in the successful implementation of the Closer Economic Partnership Arrangement (CEPA) and its supplements and subsidiary agreements, as concluded between the central government and Hong Kong and Macau in 2003. It also played a key role in the July 2017 adoption of the Framework Agreement on Deepening Guangdong-Hong Kong-Macau Co-operation in the Development of the Bay Area, as signed by the governments of Guangdong, Hong Kong and Macau, and the National Development and Reform Commission.

As a priority, the various constituent local governments will also be tasked with maintaining a level playing field for all businesses within the Bay Area, regardless of geographical affiliation or operational sector. To this end, market players will be encouraged to determine for themselves just how they should compete and co-operate with other businesses in order to deliver the maximum benefits on a commercial basis. It is also expected that the Bay Area authorities will look to establish a regional co-ordination and co-operation mechanism as a means of engaging with professional and social organisations, including industry organisations and societies. This mechanism will also facilitate private sector exchanges and collaboration, while looking to raise the standards of the area’s component sectors and optimising the allocation of resources on a market-led basis.

Hong Kong’s Bay Area Role

As the most open, international and market-oriented city in the Bay Area, Hong Kong will play a unique and indispensable role in spearheading the development of the whole region. Moreover, as a free port, it is also the least restricted location in terms of the movement of factors of production. In light of this, one of Hong Kong’s primary contributions to the Bay Area will be to ensure a high degree of openness is maintained, while the overall environment also becomes more internationalised and market-oriented. Ultimately, this is expected to facilitate a freer movement of the factors of production within the region and beyond.

In terms of the individual strengths of the constituent parts of the Bay Area, Hong Kong clearly brings its unparalleled expertise in finance, shipping, commerce and professional services into this new partnership. Under the continuing “one country, two systems” policy, Hong Kong is also expected to capitalise on its wealth of experience in international practices. Within the Bay Area, then, it will both showcase its existing internationalisation, while also acting as a facilitator for the internationalisation of all of the area’s constituent businesses.

In the financial sector, for instance, Hong Kong can rely on the massive economic and trade volume of the Bay Area to consolidate its position as the world’s largest offshore Renminbi market. By building on this foundation, it is also expected to facilitate the overall financial opening up and reform of the wider area. Similarly, Hong Kong’s unrivalled resources in shipping, trade, professional services and a number of other sectors will also make a huge contribution to internationalising the Bay Area and establishing its external connectivity and affiliations. At the same time, the area’s ties and access to the mainland will also be leveraged upon in order to maximise overall economic growth.

[1] The term “Guangdong-Hong Kong-Macau Bay Area” as used in this article refers to a geographical territory that extends across the Hong Kong and Macau special administrative regions and nine Pearl River Delta cities – Guangzhou, Shenzhen, Foshan, Dongguan, Huizhou, Zhongshan, Jiangmen, Zhuhai and Zhaoqing.

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